The New York Commodity Exchange yesterday adopted emergency temporary measures limiting traders' ability to take delivery on silver futures in an attempt to cushion the market from sudden huge demands for actual delivery.
The move came in apparent reaction to fears and rumors that private interests with massive holding might call for the physical delivery of silver in larger quantities than are on hand which would disrupt an already nervous market.
The exchange also adopted trading limits -- an overall limit of 2,000 contracts and limit on delivery to an individual interest in any one month of 500 contracts -- after a meeting yesterday morning with officials of the Commodity Futures Trading Commission who share those concerns.
Although exchange officials and others wouldn't name traders expected to be affected by the moves, the Dallas heirs to the H. L. Hunt oil fortune were clearly among them, according to market sources.
"I'd rather they not have," said Nelson Bunker Hunt of the exchange's actions yesterday as he sat in an anteroom waiting to meet with CFTC commissioner Read P. Dunn.
Estimates of the Hunt's holdings range from 2,000 to 4,000 contracts, in addition to substantial amounts of physical silver the family apparently holds. a
"I know how much I've got but I won't say," said Hunt. "I'd say a substantial amount."
The limits adopted by the New York exchange are expected to have an impact on few traders. "Those are only a few people who cannot live within them" said a Comex spokesman yesterday. The Chicago Board of Trade adopted more restrictive limits in October that will be fully effective April 1.
At yesterdays' prices, with silver closing at close to $32 an ounce, 2,000 contracts (each for 5,000 ounces of silver) are worth approximately $320 million.
The commodities futures market is basically an "insurance exchange," as one official described it, where traders buy and sell futures contracts as insurance against price changes. Only rarely do traders actually take delivery on the contracts.
"The commission's main concern is high concentration in the silver market and the use of the silver futures market for delivery," said James M. Stone, CFTC chairman. "This is an intolerable situation," he said. Stone said the CFTC had expressed "a great deal of concern about the silver market" in the morning meeting with officials of Comex, the Chicago Board of trade and MidAmerica Commodity exchange.
Hunt yesterday characterized the Comex actions as "unilaternal -- when the market goes against a trader he can't do the same thing."
Hunt said he has taken delivery on contracts recently, "but not a tremendous amount lately. Not as much as I did in 1974." With world production of silver at 300 million ounces and world consumption at 500 ounces annually, and a growing preference in the Middle East for precious metals over currency, Hunt said he found silver an excellent investment.
As for the silver delivered to him, "I put it in a bank and use it as a reserve," he said.
Hunt said he expected actions by the exchanges in limiting contracts would drive investors to invest in silver in Europe. So far, he said, he has sold no silver in response to the limits, which will also cause big contract holders to dispose of some of their holdings.
A spokesman for Comex said that the exchange's actions reflect Comex's long-standing concern about the silver market rather than reaction to pressure from the CFTC.